Why a vendor’s solicitor should always talk to the auctioneer

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Why a vendor’s solicitor should always talk to the auctioneer

Why a vendor’s solicitor should always talk to the auctioneer Jared Zak 2018-11-28T10:55:40+00:00

The recent case of SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362 showed how important it is for vendor’s solicitors to keep a dialogue with the auctioneer, particular when it comes to legal aspects relating to the price of the property.

Facts

An auction for an industrial property at Wetherill Park took place on 19 August 2015. Immediately prior to the auction, the auctioneer made very clear to all present that the price being bid was exclusive (or ‘plus’) GST. The successful purchaser bid $3.325 million and the auctioneer (without the presence of the vendor’s solicitor) wrote that price down on the marketing contract available at the auction.

Unfortunately (for the vendor) the contract which was executed on the auction date was expressed in a way that the price on the contract was inclusive of GST.

The purchaser subsequently brought a claim, that notwithstanding the terms announced by the auctioneer, the contract prevailed and the true purchase price was $3.325 million inclusive of GST.

The vendor sought ‘rectification’, a claim available where there is “clear and convincing proof” that by reason of the common mistake of the parties, the document they have signed does not “embody the final intention of the parties”.

Court’s Decision

The Supreme Court found that at the auction “it was clearly stated that GST was payable above and beyond the sale price.” The evidence of the auctioneer was corroborated by the “Reserve Price Letter” given by the vendor to the agent before the auction, stating that the reserve price was “3,500,000 + GST”.

The Court then held that the common intention of the parties was that the sale price would be $3.325 million plus GST and that the contract should be rectified accordingly. Market participants should know that, notwithstanding this decision, it is very difficult to establish rectification and the onus of proof is very much with the party seeking rectification.

Of course, none of this happened without considerable expense, stress and time spent by the vendor rectifying what was essentially an avoidable mistake had the solicitor and auctioneer communicated to one another.

Importance

In this case the vendor’s solicitor did not communicate with the auctioneer and as such the auctioneer was not aware that the Contract contained a provision which stated: “Normally, if a party must pay the price…to the other party under this contract, GST is not to be added to the price…”

It is important that a vendor and all of its agents and representatives understand the nature of their contract, in particular whether or not the sale price will be inclusive of GST.

In this case the Vendor was fortunately able to provide “clear and convincing proof” that the common intention of the parties was that the sale price did not include GST. If the Vendor was unable to satisfy this evidential burden they would have suffered a significant loss of $325,000 (10% of the purchase price of $3.25 million). Dealing with property, and large sums of money, confusion of whether GST is included or not can become very costly.